In this review an overview about biological applications of magnetic colloidal nanoparticles will be given, which comprises their synthesis, characterization, and in vitro and in vivo applications. The potential future role of magnetic nanoparticles compared to other functional nanoparticles will be discussed by highlighting the possibility of integration with other nanostructures and with existing biotechnology as well as by pointing out the specific properties of magnetic colloids. Current limitations in the fabrication process and issues related with the outcome of the particles in the body will be also pointed out in order to address the remaining challenges for an extended application of magnetic nanoparticles in medicine.